Govt seeks comments on proposed changes to insolvency law

The government on Thursday invited comments on various amendments proposed to the insolvency law, including provisions related to the time period for approval of resolution plans as well as avoidable transactions and wrongful trading.

The amendments have been proposed by the Insolvency Law Committee (ILC). The comments have been sought till January 13, 2022.

According to a public notice, changes have been proposed to enable a swift admission process, streamline provisions pertaining to avoidable transactions and wrongful trading and norms relating to the time period for approval of resolution plans.

Besides, amendments have been suggested in connection with the closure of the voluntary liquidation process and the IBC Fund.

The Insolvency and Bankruptcy Code (IBC) came into force in 2016 and has already undergone various amendments.

The proposed amendments are for the Corporate Insolvency Resolution and Liquidation Framework under the Code, which is being administered by the corporate affairs ministry.

To make the admission process for insolvency applications faster, it has been suggested that financial creditors should be asked to rely on Information Utility (IU) records to establish default.

Then, the Adjudicating Authority (AA) would only be required to consider IU-authenticated records as evidence of default for Section 7 applications filed by such financial creditors as prescribed.

"This will also dissuade AAs from taking time to determine ancillary matters such as the amount of default and allow them to speedily admit Section 7 CIRP applications on the basis of IU authenticated records evidencing the existence of default," the ministry said in the public notice.

Under the Code, the provisions on avoidable transactions provide certain look-back periods. Currently, the threshold for such look-back periods is the date of admission of a CIRP (Corporate Insolvency Resolution Process) application.

The proposed amendment is to change the threshold for the look-back period from the date of commencement of CIRP to the date of filing of the application for initiation of CIRP.

The period between the date of filing and the date of commencement of CIRP may additionally be included in the suspect period for such transactions, as per the proposed changes.

Another amendment is with respect to the approval of a resolution plan that has already been approved by the Committee of Creditors (CoC).

"It is proposed that the Code should provide a fixed time period for approval or rejection of a resolution plan by the AA... where the resolution plan is not approved or rejected within this time period, the AA shall record reasons in writing for the same," the public notice said.

Regarding the voluntary liquidation process, it has been proposed that the closure of the process may be carried out by the corporate person, subject to the same requirements as for initiation of the process and that AA might not be required.

"If such approvals are made, the liquidator may be required to make a public announcement of the closure of the process and intimate concerned authorities such as the IBBI and the registrar," the public notice said.

Another proposal for putting in place a detailed framework for contribution to and utilisation of the IBC Fund.